Freehold Royalties Ltd T.FRU

Alternate Symbol(s): FRHLF

Freehold Royalties Ltd. is a Canada-based royalty company. The Company manages non-government portfolios of oil and natural gas royalties in Canada with an expanding land base in the United States. Its primary focus is to acquire and actively manage royalties, while providing a lower risk income vehicle for its shareholders. Its total land holdings encompass approximately 6.2 million gross acres in Canada. It has royalty interests in more than 19,000 producing wells and almost 400 units spanning five provinces and eight states and receives royalty income from over 360 industry operators throughout North America. It has two geographical segments: Canada, which includes exploration and evaluation assets and the petroleum and natural gas interests in Western Canada, and US includes petroleum and natural gas interests primarily held in the Permian (Midland and Delaware), Eagle Ford, Haynesville and Bakken basins largely located in the states of Texas, Louisiana, and North Dakota.

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Freehold Royalties Ltd > RBC

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Post by retiredcfon Jul 31, 2023 9:30am

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Post# 35564498

RBC

July 31, 2023

Freehold Royalties Ltd.
Q2/23 results in line, solid drilling/leasing activity

TSX: FRU | CAD 14.22 | Outperform | Price Target CAD 19.00

Sentiment: Neutral

Freehold posted in-line Q2/23 results, with management reiterating 2023 production guidance. Drilling/leasing activity remains solid on both sides of the border with Freehold flagging increased Canadian activity in SE Saskatchewan along with the Mannville heavy oil stack, and a strong H2/23 outlook for US volumes with several multi-well pads expected to come online. Overall, we expect shares to trade roughly in line with peers following the release, though we look for more detail on the Q2/23 conference call at 11 AM ET; dial-in at 1-800-898-3989 (2023064#).

Q2/23 results generally as expected. Q2/23 volumes of 14,667 boe/d (62% liquids) were in line with RBC/consensus estimates at 14,572/14,614 boe/d, inclusive of a 225 boe/d impact from Canadian wildfires; production was split across Canada (9,800 boe/ d) and the US (4,867 boe/d). Accordingly, CFPS of $0.35 was in line with RBC/consensus estimates of $0.35/$0.36. Management reiterated 2023 guidance with royalty volumes expected to be in the range of 14,500-15,500 boe/d (62% liquids) on a US$80/bbl WTI and US$3/mcf NYMEX price deck.

Drilling/leasing updates. In Q2/23, 179 gross (1.8 net) wells were drilled in Canada (55/1.4) and the US (124/0.4); gross wells were weighted to Texas (60%), Saskatchewan (17%), and Alberta (15%), with the balance across other regions. Additionally, Freehold signed 67 agreements with 16 counterparties. Drilling in Canada was led by the Cardium with 12 gross spuds in Q2/23; Freehold also noted increasing activity in SE Saskatchewan targeting the Mississippian/Bakken formations along with broader Mannville heavy oil plays. Drilling in the US remains focused in the Permian and Eagle Ford with 88% of US activity targeted these two formations. Freehold flagged that H2/23 volumes are expected to be positively impacted by several multi-well pads in the Permian (Midland basin).

Balance sheet in good shape. Freehold exited Q2/23 with $131 million in net debt (RBCe: $133 million), with management noting a modest increase from year-end 2022 as a result of $24.4 million of income tax deposits being reclassified from current to non- current assets. On return of capital, Freehold maintained its $0.09/sh monthly dividend, amounting to $41 million paid for the quarter, or a 77% payout ratio.